By Irshad Mushtaq
Gold Investment vs. Equity Mutual Funds, Quality Shares Portfolio, and ETFs
Overview
Investors have multiple avenues for growing their wealth, each with its characteristics, risks, and returns. In this article, we delve into the performance and viability of gold investment, equity mutual funds, quality shares portfolios, and ETFs, particularly in the context of the Indian equity market.
Performance Overview (Past 40 Years)
1. Gold Investment:
Historical Returns: Gold has traditionally been a safe-haven asset, offering steady returns with minimal risk. Over the past 40 years, gold’s CAGR (Compound Annual Growth Rate) in INR terms has been around 10-11%.
Example: In 1982, gold was priced at approximately ₹2,200 per 10 grams. By 2022, it has surged to about ₹50,000 per 10 grams.
2. Equity Mutual Funds:
Historical Returns: Equity mutual funds have shown strong growth, benefiting from the overall growth in the stock markets. The average CAGR for diversified equity mutual funds has been around 15-16%.
Example: A ₹10,000 investment in 1982 in a diversified equity mutual fund could potentially grow to over ₹1 crore by 2022 given the compounding effect.
3. Quality Shares Portfolio:
Historical Returns: Investing in high-quality shares, particularly those of blue-chip companies, has been a lucrative long-term strategy. The CAGR for such investments typically ranges from 12-15%.
Example: Shares of companies like Reliance Industries or TCS, bought in the early 1980s, have multiplied manifold, delivering significant wealth to their investors.
4. ETFs (Exchange-Traded Funds):
Historical Returns: ETFs, particularly those tracking broad indices like the Nifty 50, have delivered returns comparable to the mutual funds, with a CAGR of about 13-15%.
Example: Investing in Nifty 50 ETFs since their inception has provided substantial returns, mirroring the overall market growth.
Future of Equity Stock Market in India
1. Economic Growth: India’s economy, expected to grow robustly, will positively influence the stock market.
2. Demographic Dividend: A young and growing workforce will propel consumption and investment.
3. Technological Advancements: Rapid adoption of technology will drive numerous sectors forward.
4. Government Policies: Pro-investment policies and reforms will continue to foster a favorable environment for equities.
Summary in Points
Gold: Safe haven, 10-11% CAGR over 40 years.
Equity Mutual Funds: Robust growth, ~15-16% CAGR.
Quality Shares: High returns from blue-chips, ~12-15% CAGR.
ETFs: Market-matching returns, ~13-15% CAGR.
Future: Positive due to economic growth, demographic advantage, technology adoption, and favorable policies.
Choosing the right investment depends on individual risk tolerance, investment horizon, and financial goals. Diversification across these asset classes could provide balanced growth and risk mitigation.
- Learn from the insights of writer and investor, founder of MI Securities and Business Partner at Sharekhan! Reach out to him at [email protected] for valuable knowledge on financial matters.
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